Friday, May 29, 2009

There was a good amount of buzz last week surrounding hedge fund manager John Paulson's move into the gold sector, one that coincided with the opening of a new Paulson & Co. fund (the "Paulson Real Estate Recovery Fund") that will invest in real estate. Market Folly has more on Paulson & Co.'s investments in gold and the gold mining shares in, "Paulson & Co. buys tons of gold": "The first major move that everyone will be talking about is Paulson's big entrance into gold. His position in the Gold Trust (GLD) is brand new and is brought up to a whopping 30% of his portfolio. Now, there are indeed a few caveats with this move: Paulson & Co have said themselves that they have done so as a hedge, as they now own well over 8% of this exchange traded fund (ETF). Their hedge funds have a share class that is denominated in gold (instead of in US dollars or Euros). Still though, that's quite a large hedge to have. Not to mention, Paulson also has a copious amount of gold miners now littered throughout his equity portfolio... And, such a massive position in gold and gold miners has to be for more than merely a hedge.One other thing to consider with Paulson's portfolio is that these holdings listed above are only his long equity holdings. The main reason why we bring this up is because the holdings above represent only a piece of his overall portfolio pie. Many of the positions above are merger arbitrage and event driven positions. While his gold stakes may be a large part of the assets disclosed in this filing, they are not quite as big when you compare them to his total assets under management. So, keep that in mind..."Jay at Market Folly also notes that other prominent hedge funds, including David Einhorn's Greenlight Capital and Stephen Mandel's Lone Pine Capital, have also recently made notable forays into the gold sector. So should we follow the hedge fund crowd into their recent gold trade? Andrew Mickey offers an interesting take on this very issue in, "Why Gold Enthusiasm is 'Cool' Again". As he notes in the article, Paulson's Midas touch has made gold the new "cool" investment on Wall Street, which is enough to leave Mickey skeptical on the timing of this particular speculation. "Right now, gold is the hot sector. Expectations are soaring and it is only a matter of time until the “hot money” finds something new. Gold is glittering now and it will do so in the future, but it’s best to buy it when it’s not being watched so closely.

Yes, I’ve bought gold and gold stocks in the past. I will be buying gold stocks again in the future. It’s all part of my personal investment plan which I’m sticking too.

Inflation is coming. Real assets and shares of producers of real assets will do exceptionally well in the years ahead. For now though, it’s best to look for value in the real asset sectors."Check out the full piece at the link above (Hat tip to Richard Russell), and see why this writer thinks the recent gold chase has left some hard asset sectors overlooked and relatively undervalued.